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78 Bus. Law. 371 (2022-2023)
SPAC Law and Myths

handle is hein.journals/busl78 and id is 397 raw text is: SPAC Law and Myths By John C. Coates* Special purpose acquisition companies (SPACs) were the financial-legal hit of 2021, before they weren't. Breaking records and displacing, to an extent, conventional initial public offerings (C-IPOs), even as C-IPOs also boomed, SPACs spiked, in part, be- cause-in addition to myths about their financial attributes, which others have de- bunked-several myths about SPAC law circulated widely and persistently. SPAC promoters claimed that (1) securities regulations ban projections from being used in C-IPOs, (2) liability related to projections was lower and more certain in SPACs than it was (and is), (3) the Securities and Exchange Commission (SEC) registration process delays C-IPOs more than SPACs, (4) the SEC changed SPAC accounting rules in early 2021, (5) this change was the primary reason the SPAC wave slowed and peaked, and (6) the Investment Company Act clearly does not apply to SPACs. Consistent with these being myths, de-SPACs from 2021 are experiencing significant levels of litigation-even higher than in C-IPOs. These myths were aimed primarily not at unsophisticated retail investors, but business journalists, sophisticated SPAC sponsors, and owner-managers of SPAC targets. They illustrate a broader and underappreciated fact that complex fi- nancial-legal innovation permits promoters to exploit the credence good character of professional advice, perpetuate deep fraud, and distort markets and asset prices more and longer than conventional theory assumes. To moderate deep fraud's market distor- tions, proposed SEC reforms should be finalized to improve SPAC disclosure, enhance investor understanding of their risks, and reduce regulatory uncertainties that contrib- ute to legal myths about SPACs, but the inherent complexity of the product may require an ongoing role for regulators to speak clearly about SPAC law and its uncertainties. INTRODUCTION After remaining a capital markets backwater since re-emerging in their current form in 2009,' special purpose acquisition companies (SPACs) became the * John F. Cogan Professor of Law and Economics, Harvard Law School. For helpful comments on this topic or earlier drafts, I thank Mike Klausner, Michael Ohlrogge, Yiming Qian, Jay Ritter, Yochai Benkler, Amanda Rose, John Morley, Rob Jackson, Holger Spamann, Leo Strine, Andrew Tuch, Alex Lee Yoon-Ho, Yaron Nili, John Olson, the wonderful staff at the Securities and Exchange Commission from whom I learned a great deal while working on SPACs there in 2021, and Steven Cleveland. My thanks for research assistance to Chaim Herbstman and Clara Silva. All errors remain my responsi- bility. For comments: jcoates@law.harvard.edu. 1. For analyses of earlier generation SPACs, which were structured differently from today's SPACs, see Yochanan Shachmurove & Milos Vulanovic, Specialized Purpose Acquisition Company IPOs, 371

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